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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
--------------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE PERIOD ENDED SEPTEMBER 30, 2002 OR
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _________ to _________
Commission File Number 1-13725
EDT Learning, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 76-0545043
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2999 North 44th Street, Suite 650, Phoenix, Arizona 85018
(address of principal executive offices) (Zip code)
(602) 952-1200
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ( ) No (X)
The number of shares of Common Stock of the Registrant, par value $.001 per
share, outstanding at November 6, 2002, was 16,638,471.
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FORM 10-Q REPORT INDEX
10-Q PART AND ITEM NO.
Part I--Financial Information PAGE
----
Item 1--Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of September 30, 2002 and
March 31, 2002................................................. 3
Consolidated Statements of Operations for the Three and Six
Months Ended September 30, 2002 and September 30, 2001......... 4
Consolidated Statement of Changes in Shareholders'
Equity for the Six Months Ended September 30, 2002............. 5
Consolidated Statements of Cash Flows for the Six
Months Ended September 30, 2002 and September 30, 2001......... 6
Notes to Consolidated Financial Statements..................... 7
Item 2--Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 11
Item 3--Qualitative and Quantitative Disclosures about Market Risk..... 15
Item 4--Controls and Procedures........................................ 16
Part II--Other Information
Item 1--Legal proceedings.............................................. 17
Item 2--Change in securities and use of proceeds....................... 17
Item 3--Defaults of senior securities.................................. 17
Item 4--Submission of matters to a vote of security holders............ 17
Item 5--Other information.............................................. 17
Item 6--Exhibits and Reports on Form 8-K............................... 17
Signatures.................................................................. 20
Certifications.............................................................. 21
2
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
September 30, March 31,
2002 2002
-------- --------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 832 $ 1,498
Accounts receivable, net of allowance for doubtful
accounts of $593 and $754, respectively ....................... 1,022 824
Prepaid and other current assets ................................ 118 427
Notes receivable from affiliated practices-current, net ......... 310 536
-------- --------
Total current assets .......................................... 2,282 3,285
Property and equipment, net ........................................ 1,519 2,137
Goodwill ........................................................... 9,600 7,479
Intangible assets, net ............................................. 1,504 1,984
Notes receivable from affiliated practices, net .................... 488 493
Other assets ....................................................... 262 209
-------- --------
Total assets .................................................. $ 15,655 $ 15,587
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt ............................... $ 725 $ 1,337
Accounts payable and accrued liabilities ........................ 1,770 2,203
Current portion of deferred revenue ............................. 340 853
Current portion of capital lease liabilities .................... 399 430
-------- --------
Total current liabilities ..................................... 3,234 4,823
Long term debt, less current maturities ............................ 5,746 5,367
Capital lease liabilities .......................................... 308 536
Deferred revenue ................................................... 84 195
-------- --------
Total liabilities ............................................. 9,372 10,921
Commitments and contingencies
Shareholders' Equity:
Current stock, $.001 par value 40,000,000 shares
authorized, 17,818,101 and 15,281,485 issued, respectively .... 18 15
Additional paid-in capital ...................................... 33,659 31,336
Accumulated deficit ............................................. (26,253) (25,544)
Less: 1,179,630 treasury share at cost ......................... (1,141) (1,141)
-------- --------
Total shareholders' equity .................................... 6,283 4,666
-------- --------
Total liabilities and shareholders' equity .................... $ 15,655 $ 15,587
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS
3
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
Three Months Ended Six Months Ended
September 30, September 30,
-------------------- --------------------
2002 2001 2002 2001
-------- -------- -------- --------
Revenues:
Learning .................................................... $ 1,141 $ 127 $ 2,272 $ 285
Dental contracts ............................................ 821 1,709 1,993 3,478
-------- -------- -------- --------
Total revenues .......................................... 1,962 1,836 4,265 3,763
Operating expenses:
Research and development .................................... 918 255 1,810 481
Sales and marketing ......................................... 491 223 851 426
General and administrative .................................. 735 253 1,463 917
Depreciation and amortization ............................... 482 542 991 1,074
-------- -------- -------- --------
Total operating expenses ................................ 2,626 1,273 5,115 2,898
Earnings (loss) from operations ................................ (664) 563 (850) 865
Interest expense ............................................ (381) (271) (766) (559)
Interest income ............................................. 56 67 92 143
Other income ................................................ 635 83 815 176
-------- -------- -------- --------
Income (loss) before income taxes ........................... (354) 442 (709) 625
Income taxes ............................................ -- -- -- --
-------- -------- -------- --------
Net income (loss) .............................................. $ (354) $ 442 $ (709) $ 625
======== ======== ======== ========
Earnings (loss) per common share, basic and diluted ............ $ (0.02) $ 0.04 $ (0.05) $ 0.06
======== ======== ======== ========
Number of shares used in calculation of earnings (loss) per
share basic and diluted ...................................... 16,637 10,542 15,572 10,557
======== ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS
4
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
(in thousands)
Common Stock Additional Total
------------------- Paid-In Accumulated Treasury Shareholders'
Shares Amount Capital Deficit Stock Equity
-------- -------- -------- -------- -------- --------
Balances, April 1, 2002 ......... 15,281 $ 15 $ 31,336 $(25,544) $ (1,141) $ 4,666
Issuance of common stock ........ 2,537 3 2,323 -- -- 2,326
Net loss ........................ -- -- -- (709) -- (709)
-------- -------- -------- -------- -------- --------
Balances, September 30, 2002 .... 17,818 $ 18 $ 33,659 $(26,253) $ (1,141) $ 6,283
======== ======== ======== ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS
5
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CASH FLOWS
(unaudited)
(in thousands)
Six months ended
September 30,
------------------
2002 2001
------- -------
Net cash used in operating activities .................... $(1,415) $ (250)
Cash flows from investing activities:
Repayment of notes receivable ......................... 388 448
Proceeds from practice terminations ................... 940 703
Issuance of notes receivable .......................... (85) --
Capital expenditures .................................. (83) (8)
------- -------
Net cash provided by investing activities ........... 1,160 1,143
------- -------
Cash flows from financing activities:
Repayment of long-term debt ........................... (171) (615)
Repayment of capital lease liabilities ................ (259) (176)
Proceeds from stock option exercise ................... 19 --
Financing costs ....................................... -- (59)
------- -------
Net cash used in financing activities ............... (411) (850)
------- -------
Net change in cash and cash equivalents .................. (666) 43
Cash and cash equivalents, beginning of period ........... 1,498 1,051
------- -------
Cash and cash equivalents, end of period ................. $ 832 $ 1,094
======= =======
Non cash investing and financing activities:
Issuance of common stock .............................. $ 2,307 $ --
Convertible subordinated notes offset against
receivables from affiliated practices ............... 307 --
Warrants issued in connection with financing costs .... -- 44
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS
6
EDT LEARNING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Headquartered in Phoenix, Arizona, EDT Learning, Inc., ("the Company") is a
leading provider of custom, comprehensive e-Learning business solutions for
corporate clients seeking to train non-technical users (individuals with less
computer experience). The Company supports organizations requiring internal
training, product demonstration and customer education programs with the goal of
mapping e-Learning solutions to business results.
The Company began in March of 1998 as a dental practice management company
under the name Pentegra Dental Group, Inc. Its formation included the
simultaneous rollup of dental practices and an initial public offering raising
$25 million in initial capital. The Company's initial goals were to provide
training and practice enhancement services to its affiliated dental practices
spread over 31 states. The Company subsequently shifted its focus away from the
dental practice management industry and toward the e-Learning sector in the
summer of 2001 and changed its name to EDT Learning, Inc.
The unaudited consolidated financial statements included herein have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). Pursuant to such regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The Company believes the presentation and disclosures
herein are adequate to make the information not misleading, but do not purport
to be a complete presentation inasmuch as all note disclosures required by
generally accepted accounting principles are not included. In the opinion of
management, the consolidated financial statements reflect all elimination
entries and normal recurring adjustments that are necessary for a fair statement
of the results for the interim periods ended September 30, 2002 and 2001.
Fiscal operating results for interim periods are not necessarily indicative
of the results for full years. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements of the Company
and related notes thereto, and management's discussion and analysis related
thereto, all of which are included in the Company's annual report on Form 10-K
for the year ended March 31, 2002, as filed with the SEC.
The accompanying financial statements have been prepared on a basis which
assumes that the Company will continue as a going concern and which contemplates
the realization of assets and the satisfaction of liabilities and commitments in
the normal course of business.
RECENT EVENTS, LIQUIDITY AND MANAGEMENT PLANS
The Company changed its business model from a dental practice management
company to an e-Learning company in the first quarter of fiscal 2001. The
Company is currently implementing its e-Learning strategy, has a limited
operating history with regard to its e-Learning business and is continuing the
development and enhancement of its e-Learning product and service offerings and
related revenue streams. The Company acquired two e-Learning entities during
fiscal 2002 and one e-Learning company in June 2002 and has integrated the
operations of these entities.
The Company reported a working capital deficit and negative cash flow from
operations for fiscal year 2002 and the six months ended September 30, 2002.
Also, the Company's management service agreements with the affiliated dental
practices begin to expire on April 1, 2003 and will continue to expire through
December 31, 2003. This will reduce revenues and cash flow from this source and
accordingly could negatively affect the Company's liquidity and operating
results. During the six months ended September 30, 2002, the Company used cash
flows from operations of $1.4 million and reported a working capital deficit of
$952,000. These items discussed above and the limited operating history as an
e-Learning company raise substantial doubt about the Company's ability to
continue as a going concern.
Management's plan with regard to these matters include continued
development, marketing and licensing of its e-Learning products and services
through both internal growth and acquisition and acceleration of cash
collections from affiliated dental practices by offering a sale of the dental
practices management service agreements earlier than contractually required.
7
Although management continues to pursue these plans, there is no assurance that
the Company will be successful in obtaining sufficient revenues from its
products and services to provide adequate cash flows to sustain operations. The
consolidated financial statements do not include any adjustments related to the
recoverability of assets and classification of liabilities that might result
from the outcome of this uncertainty.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent asset and
liabilities. The more significant areas requiring use of estimates relate to
revenue recognition, bad debts, intangible assets, income taxes and
contingencies and litigation. Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumption or conditions.
REVENUE RECOGNITION
The Company recognizes revenue and profit as work progresses on learning
contracts using the percentage-of-completion method, which relies on estimates
of total expected contract revenue and costs. The Company follows this method
since reasonably dependable estimates of the costs applicable to various stages
of a contract can be made. Recognized revenues and profit are subject to
revisions as the contract progresses to completion. Revisions in profit
estimates are charged to income in the period in which the facts that give rise
to the revision become known. Customers sometimes request modifications to
projects in progress which may result in significant revisions to cost estimates
and profit recognition, and the Company may not be successful in negotiating
additional payments related to the changes in scope of requested services.
Provisions for any estimated losses on uncompleted contracts are made in the
period in which such losses become evident. There were no such losses at
September 30, 2002.
In connection with the Company's initial sales of software licenses, the
Company adopted Statement of Position 97-2 as issued by the American Institute
of Certified Public Accountants. In accordance with SOP 97-2, the Company
recognizes revenue from the sale of software if all of the following conditions
are met:
* There is persuasive evidence of an arrangement with the customer;
* The product has been delivered to the customer;
* Collection of the fees is probable; and
* The amount of the fees to be paid by the customer is fixed or
determinable.
For arrangements requiring customer acceptance, revenue is deferred until
the earlier of the end of the acceptance period or until written notice of
acceptance is received from the customer. We consider all arrangements with
payment terms longer than normal not to be fixed or determinable. For
arrangements involving extended payment terms, revenue recognition occurs when
payments are due.
The Company has not added to or changed its critical accounting policies
significantly since March 31, 2002 other than in relation to revenue recognition
or the new prouncements discussed below. For a description of these policies,
refer to note 3 of the consolidated financial statements in the Company's annual
report on Form 10-K for the year ended March 31, 2002.
NEW PRONOUNCEMENTS
In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations"
was issued. The standard requires that legal obligations associated with the
retirement of long-lived intangible assets be recorded at fair value when
incurred and will be effective for the Company on April 1, 2003. The adoption of
this statement is not expected to have a material impact on the Company's
consolidated financial position, results of operations or cash flows.
8
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued.
This statement provides guidance on the classification of gains and losses from
the extinguishment of debt and on the accounting for certain specified lease
transactions. Under the new guidance of SFAS No. 145, losses from early
extinguishments of debt will be classified as extraordinary items when the
losses are considered unusual in nature and infrequent in occurrence. SFAS No.
145 will be effective for the Company on April 1, 2004.
In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" was issued. This statement provides guidance on the
recognition and measurement of liabilities associated with disposal activities
and is effective for the Company on April 1, 2003. The Company is currently
reviewing the provisions of SFAS No. 146 to determine the standard's impact upon
adoption.
EARNINGS PER SHARE
Earnings per share are computed based upon the weighted average number of
shares of Common Stock and Common Stock equivalents outstanding during each
period. Outstanding options to purchase approximately 1,958,354 and 2,390,967
shares of Common Stock at exercise prices above market value were excluded from
the calculation of earnings per share for the three months ended September 30,
2002 and 2001 respectively, because their effect would have been antidilutive.
3. GOODWILL
On April 1, 2002, the Company adopted SFAS 142, "Goodwill and Other
Intangible Assets" and as a result, the Company's goodwill is no longer
amortized. SFAS 142 requires that goodwill be tested annually (or more
frequently if impairment indicators arise) for impairment. Upon initial
application of SFAS 142, the Company determined there was no impairment of
goodwill.
Had the Company adopted SFAS No. 142 on April 1, 2001, net income would
have increased by $23,000 and $46,000 for the three and six months ended
September 30, 2001 respectively, due to the non-amortization of goodwill. The
adoption of this statement would not have affected basic and diluted earnings
per share of $0.04 and $0.06 for the three and six months ended September 30,
2001.
9
4. SEGMENT INFORMATION
During the periods ended September 30, 2002 and 2001, the Company had two
reportable segments, learning and dental practice management. The learning
segment included revenues and operating expenses related to the development and
sale of the Company's learning products. The dental practice segment included
revenues from service contracts, operating expenses related to the delivery of
the dental services and other non-operating expenses.
There are no intersegment revenues. The Company does not review assets by
operating segment.
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ------------------
2002 2001 2002 2001
------- ------- ------- -------
Revenues
Learning ....................................... $ 1,141 $ 127 $ 2,272 $ 285
Dental practice management ..................... 821 1,709 1,993 3,478
------- ------- ------- -------
Total revenues ............................. 1,962 1,836 4,265 3,763
------- ------- ------- -------
Operating expenses
Learning ....................................... 1,997 478 3,249 907
Dental practice management ..................... 629 795 1,866 1,991
------- ------- ------- -------
Total operating expenses ................... 2,626 1,273 5,115 2,898
------- ------- ------- -------
Earnings (loss) from operations
Learning ....................................... (856) (351) (977) (622)
Dental practice management ..................... 192 914 127 1,487
------- ------- ------- -------
Total earnings (loss) from operations ...... (664) 563 (850) 865
------- ------- ------- -------
Non operating income (expense)
Learning ....................................... 100 -- 100 --
Dental practice management ..................... 210 (121) 41 (240)
------- ------- ------- -------
Total non-operating expenses ............... 310 (121) 141 (240)
------- ------- ------- -------
Income (loss) before income taxes
Learning ....................................... (756) (351) (877) (622)
Dental practice management ..................... 402 793 168 1,247
------- ------- ------- -------
Total income (loss) before income taxes .... $ (354) $ 442 $ (709) $ 625
======= ======= ======= =======
5. BUSINESS COMBINATIONS
On June 17, 2002, the Company acquired certain assets of Quisic
Corporation, ("Quisic") a California based private company in exchange for 2.5
million shares of the Company's common stock and the assumption of approximately
$223,000 of liabilities. On July 2, 2002, the Company filed an initial Form 8-K
to disclose this acquisition. The Company's Form 8-K/A was due on September 3,
2002. Pursuant to Section 4, "Covenants of the Seller" of the Asset Purchase
Agreement, Quisic was obligated to provide its audited financial statements to
the Company for the years ended December 31, 2001 and 2000 within two weeks of
the transaction closing, well in advance of September 3, 2002. As of November
13, 2002, Quisic and its auditors have not delivered Quisic's audited financial
statements to the Company. The Company has therefore been unable to file Form
8-K/A due to a lack of audited financial statements of Quisic for the years
ended December 31, 2001 and 2000. The Company anticipates receiving the audited
financial statements of Quisic within the next 30 days, although no assurance
can be provided as to when or whether the Company will receive the audited
financial statements. The Company will file Form 8-K/A as soon as possible after
those financial statements become available.
10
6. SUBSEQUENT EVENT
In November 2002, the Company announced the signing of an asset purchase
agreement with Mentergy, Inc., for the purchase of the LearnLinc(R) live virtual
classroom software and the TestLinc(R) on line testing and assessment tool. The
definitive agreement requires approval by the District Court in Tel Aviv,
Israel, which is monitoring the restructuring of Mentergy, Inc.'s parent
company, Mentergy, Ltd.
7. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company has a pending lawsuit against an affiliated practice for
defaulting in the payment of the required service fees. The Company is seeking
damages equal to past due and remaining service fees, consequential damages
equal to the value of the intangible practice asset and attorney's fees. The
Company is also party to three other legal disputes arising from the ordinary
course of its e-Learning business. While in the opinion of management,
resolution of these matters is not expected to have a material adverse effect on
the Company's financial position, results of operations or cash flows, the
ultimate outcome of any litigation is uncertain. Were an unfavorable outcome to
occur, the impact could be material to the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. THESE STATEMENTS ARE BASED ON CURRENT PLANS AND EXPECTATIONS OF EDT
LEARNING, INC. AND INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
FUTURE ACTIVITIES AND RESULTS OF OPERATIONS TO BE MATERIALLY DIFFERENT FROM THAT
SET FORTH IN THE FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER INCLUDE, AMONG OTHERS, RISKS ASSOCIATED WITH THE
E-LEARNING BUSINESS, FLUCTUATIONS IN OPERATING RESULTS AND VARIATIONS IN STOCK
PRICE, CHANGES IN GOVERNMENT REGULATIONS, COMPETITION, RISKS RELATED TO THE
COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN AND RISKS DETAILED IN EDT
LEARNING'S SEC FILINGS.
OVERVIEW
Headquartered in Phoenix, Arizona, EDT Learning is a leading provider of
custom, comprehensive e-Learning business solutions for corporate clients
seeking to train non-technical users (individuals with less computer
experience). The Company supports organizations requiring internal training,
product demonstration and customer education programs with the goal of mapping
e-Learning solutions to business results.
RESULTS OF OPERATIONS
As an extension of its educational and training background, the Company has
broadened its reach to focus on the larger growing e-Learning and corporate
training market. With the launch of the Company's state of the art learning
management system and its e-Learning engine, the Company now provides a
comprehensive array of e-Learning content, hosting and delivery services. The
Company's synchronous and asynchronous content delivery solutions provide an
array of e-Learning products that are customized to each corporate client. The
Company is positioning itself in the corporate training sector of the e-Learning
marketplace leveraging its existing infrastructure and using scale provided by
an integrated product.
The Company continues to provide services to its Affiliated Practices in
accordance with the modified service agreements. The actual terms of the various
service agreements vary slightly on a case-by-case basis, depending on
negotiations with the individual Affiliated Practices. Those modified service
agreements require in general that the Company provide: access to online
practice enhancement services; access to online tools and payroll services;
access to certain on-site consulting and seminar programs; and the use of the
tangible assets owned by the Company located at each affiliated dental practice
location. The service fees payable to the Company under the modified service
agreements are guaranteed by the owner-dentists. The Company's management
service agreements with the affiliated dental practices begin to expire on April
11
1, 2003 and will continue to expire through December 31, 2003. This will reduce
revenues and cash flow from this source and accordingly could negatively affect
the Company's liquidity and operating results.
The operations of the Company involve many risks, which, even through a
combination of experience, knowledge and careful evaluation, may not be
overcome. These risks include the fact that the market for e-Learning products
and services is in the early stages of development and may not grow to a
sufficient size or at a sufficient rate to sustain the Company's business. The
Company also faces intense competition from other e-learning providers and may
be unable to compete successfully. Many of the Company's existing and potential
competitors have longer operating histories and significantly greater financial,
technical and other resources and therefore may be able to more quickly respond
to changing opportunities or customer requirements. New competitors are also
likely to enter this market in the future due to the lack of significant
barriers to enter the market. The Company cannot assure investors that it will
be able to contend effectively with such increased competition.
REVENUES
Total revenues generated for the three months ended September 30, 2002 and
2001 were $2.0 million and $1.8 million respectively, an increase of $126,000.
The Company recognized $1.1 million in learning revenues in the three months
ended September 30, 2002 compared with $127,000 of learning revenues in the
three months ended September 30, 2001, an increase of $1 million. The increase
is a result of the Company's continuing expansion into the e-Learning
marketplace and has been fueled by the acquisitions in fiscal 2002 of
Learning-Edge, Inc. and ThoughtWare Technologies, Inc. and the acquisition of
certain assets of Quisic Corporation in June 2002. Revenue from dental contacts
decreased by $888,000 during the three months ended September 30, 2002 as
compared to the three months ended September 30, 2001 due to the modification
and termination of certain dental contracts. Dental contract revenue will
continue to decline as the contracts reach their expiration dates, generally
over the next 6 to 15 months. This will reduce revenue and cash flow from this
source and accordingly could negatively affect the Company's liquidity and
operating results.
Total revenues generated for the six months ended September 30, 2002 and
2001 were $4.3 million and $3.8 million respectively, an increase of $502,000.
The Company recognized $2.3 million in learning revenues in the six months ended
September 30, 2002 compared with $285,000 of learning revenues in the six months
ended September 30, 2001, an increase of $2 million. Revenue from dental
contracts decreased by $1.5 million during the six months ended September 30,
2002 as compared to the six months ended September 30, 2001 due to the
modification and termination of certain dental contracts. Dental contract
revenue will continue to decline as the contracts reach their expiration dates,
generally over the next 6 to 15 months.
OPERATING EXPENSES
Operating expenses consist of research and development, sales and
marketing, general and administrative and depreciation and amortization
expenses. The Company incurred operating expenses of $2.6 million and $1.3
million for the three months ended September 30, 2002 and 2001, respectively, an
increase of $1.3 million. The Company incurred operating expenses of $5.1
million and $2.9 million for the six months ended September 30, 2002 and 2001
respectively, an increase of $2.2 million.
Research and development expenses include expenses incurred in connection
with the provision of e-learning services, development of new products and new
product versions and consist primarily of salaries and benefits, communication
equipment and supplies. Research and development expenses were $918,000 and $1.8
million for the three and six months ended September 30, 2002 compared with
$255,000 and $481,000 for the three and six months ended September 30, 2001,
increases of $663,000 and $1.3 million, respectively. The increases are a result
of the Company's continuing expansion into the e-Learning marketplace.
Sales and marketing expenses consist primarily of sales and marketing
salaries and benefits, travel, advertising, and other marketing literature.
Sales and marketing expenses were $491,000 and $851,000 for the three and six
months ended September 30, 2002 compared with $223,000 and $426,000 for the
three and six months ended September 30, 2001, increases of $268,000 and
$425,000, respectively. The increases are a result of the Company's continuing
expansion into the e-Learning marketplace.
12
General and administrative expenses consist of the corporate expenses of
the Company. These corporate expenses include salaries and benefits of
executive, finance and administrative personnel, rent, bad debt expense,
professional services, travel, office costs and other general corporate
expenses.
For the three months ended September 30, 2002 and 2001, general and
administrative expenses were $735,000 and $253,000 respectively, an increase of
$482,000. General and administrative expenses increased primarily due to
increases in bad debt expense of $202,000, salaries and benefits of $122,000,
insurance of $106,000 and occupancy of $52,000.
For the six months ended September 30, 2002 and 2001, general and
administrative expenses were $1.5 million and $917,000 respectively, an increase
of $546,000. General and administrative expenses increased primarily due to
increases in salaries and benefits of $122,000, professional services of
$111,000, bad debts expense of $107,000, insurance of $106,000 and occupancy of
$100,000.
Depreciation and amortization expenses were $482,000 and $991,000 for the
three and six months ended September 30, 2002 compared with $542,000 and $1.1
million for three and six months ended September 30, 2001, decreases of $60,000
and $83,000, respectively. The decreases are primarily due to the modification
and terminations of the service agreements that returned ownership of dental
practice equipment to the related dental practices. A portion of these decreases
were offset by depreciation of the property and equipment purchased in the
acquisitions of Learning-Edge, Inc., ThoughtWare Technologies, Inc. and certain
assets of Quisic Corporation.
INCOME TAX EXPENSE
The Company recorded no tax benefit during the three and six months ended
September 30, 2002, because it concluded it is not likely it would be able to
recognize its net operating loss carry forwards due to the lack of operating
history of its eBusiness plan. These net operating loss carry forwards begin to
expire in 2018. At September 30, 2002, the Company also has a net deferred tax
asset of $6.0 million with a corresponding valuation allowance. These tax
benefits are scheduled to expire over a period of six to fourteen years.
The Company recorded no tax expense during the three and six months ended
September 30, 2001 due to the utilization of its net operating loss
carryforward.
INTEREST EXPENSE, INTEREST INCOME AND OTHER INCOME
Interest expense increased $110,000 from $271,000 for the three months
ended September 30, 2001 to $381,000 for the three months ended September 30,
2002. Interest expense increased $207,000 from $559,000 for the six months ended
September 30, 2001 to $766,000 for the six months ended September 30, 2002. The
increases are primarily attributable to the amortization of the warrant discount
and beneficial conversion feature related to the Private Placement Offering
consummated by the Company in March 2002. Interest expense related to the
amortization of the warrant discount and beneficial conversion feature was
$123,000 and $246,000 for the three and six months ended September 30, 2002.
Interest income decreased $11,000 from $67,000 for the three months ended
September 30, 2001 to $56,000 for the three months ended September 30, 2002.
Interest income decreased $51,000 from $143,000 for the six months ended
September 30, 2001 to $92,000 for the six months ended September 30, 2002. The
decreases are attributable to note receivable collections and the subsequent
declining principal balances on the Company's notes receivable.
Other income includes the gains recorded from terminating the service
agreements of the Affiliated Practices and the sale of Company assets. Other
income increased $552,000 from $83,000 for the three months ended September 30,
2001 to $635,000 for the three months ended September 30, 2002. Other income
increased $639,000 from $176,000 for the six months ended September 30, 2001 to
$815,000 for the six months ended September 30, 2002.
NEW PRONOUNCEMENTS
In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations"
was issued. The standard requires that legal obligations associated with the
retirement of long-lived intangible assets be recorded at fair value when
incurred and will be effective for the Company on April 1, 2003. The adoption of
13
this statement is not expected to have a material impact on the Company's
consolidated financial position, results of operations or cash flows.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued.
This statement provides guidance on the classification of gains and losses from
the extinguishment of debt and on the accounting for certain specified lease
transactions. Under the new guidance of SFAS No. 145, losses from early
extinguishments of debt will be classified as extraordinary items when the
losses are considered unusual in nature and infrequent in occurrence. SFAS No.
145 will be effective for the Company on April 1, 2004.
In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" was issued. This statement provides guidance on the
recognition and measurement of liabilities associated with disposal activities
and is effective for the Company on April 1, 2003. The Company is currently
reviewing the provisions of SFAS No. 146 to determine the standard's impact upon
adoption.
LIQUIDITY AND CAPITAL RESOURCES
The Company changed its business model from a dental practice management
company to an e-Learning company in the first quarter of fiscal 2001. The
Company is currently implementing its e-Learning strategy, has a limited
operating history with regard to its e-Learning business and is continuing the
development and enhancement of its e-Learning product and service offerings and
related revenue streams. The Company acquired two e-Learning entities during
fiscal 2002 and one e-Learning company in June 2002 and has integrated the
operations of these entities.
The Company reported a working capital deficit and negative cash flow from
operations for fiscal year 2002 and the six months ended September 30, 2002.
Also, the Company's management service agreements with the affiliated dental
practices begin to expire on April 1, 2003 and will continue to expire through
December 31, 2003. This will reduce revenues and cash flow from this source and
accordingly could negatively affect the Company's liquidity and operating
results. During the six months ended September 30, 2002, the Company used cash
flows from operations of $1.4 million and reported a working capital deficit of
$952,000. These items discussed above and the limited operating history as an
e-Learning company raise substantial doubt about the Company's ability to
continue as a going concern.
Management's plan with regard to these matters include continued
development, marketing and licensing of its e-Learning products and services
through both internal growth and acquisition and acceleration of cash
collections from affiliated dental practices by offering a sale of the dental
practices management service agreements earlier than contractually required.
Although management continues to pursue these plans, there is no assurance that
the Company will be successful in obtaining sufficient revenues from its
products and services to provide adequate cash flows to sustain operations.
The Company has made acquisitions, and management expects that other
e-learning businesses will be acquired in the future. There can be no assurance
that the Company will be able to identify or reach mutually agreeable terms with
acquisition candidates and their owners, or that the Company will be able to
profitably manage additional businesses or successfully integrate such
additional businesses into the Company at all, or without substantial costs,
delays or other problems. There can be no assurance that businesses acquired
will achieve sales and profitability that justify the investment made by the
Company. Any inability on the part of the Company to control these risks
effectively and integrate and manage acquired businesses could have a material
adverse effect on the Company. Acquisitions may result in increased depreciation
and amortization expense; increase interest expense, increased financial
leverage or decrease operating results.
The Company's service agreements with affiliated dental practices begin to
expire on April 1, 2003 and will continue to expire through December 31, 2003,
which will reduce revenues and cash flow from this source and accordingly could
negatively affect the Company's liquidity and operating results. During the six
months ended September 30, 2002, the Company received $940,000 in cash from
terminating the service agreements with Affiliated Practices. These cash
collections accelerate the date at which the Company would be required to
sustain its operations solely on cash collections derived from e-learning
14
revenues. However, there can be no assurance that the Company's e-Learning
strategies will be achieved or that the affiliated dental practices will
continue to agree upon terms acceptable to the Company.
At September 30, 2002, the Company had a working capital deficit of
$952,000. Current assets included $832,000 in cash and $1.3 million in accounts
and notes receivable. Current liabilities consisted of $340,000 of deferred
revenue, $1.1 million of current maturities of long-term debt and capital leases
and $1.8 million in accounts payable and accrued liabilities.
During the six months ended September 30, 2002 and 2001, the Company used
$1.4 million and $250,000 respectively for operating activities, primarily from
the use of working capital.
The Company had outstanding total debt (secured and unsecured promissory
notes) of $8.5 million at September 30, 2002. Of that amount, the Company has
$5.8 million of convertible redeemable subordinated notes, which mature on March
29, 2012. The remaining balance of $2.7 million is owed to various parties with
differing maturities as follows: $389,000 are unsecured notes which arose as
part of the Company's initial public offering and are due on March 30, 2003;
$89,000 are unsecured promissory notes of which were issued to former
shareholders of Omega Orthodontics, Inc. or were assumed by the Company as part
of its acquisition of Omega Orthodontics, Inc. and are due in fiscal 2003 and
2004. $1.3 million are unsecured promissory notes of which $1.0 million were
issued to former shareholders of Learning-Edge, Inc. and $0.3 million were
assumed by the Company as part of its acquisition of Learning-Edge, Inc. These
notes mature in fiscal 2004 and 2005. $849,000 are unsecured convertible
promissory notes which were issued to dentists which the Company affiliated with
as part of its dental practice management business and are due in July 2004.
The following schedule details all of the Company's indebtedness and the
required contractual payments related to such obligations at September 30, 2002
(in thousands):
Due in less Due in one to Due in four to Due after
Total than one year three years five years five years
------- ------- ------- ------- -------
Long term debt ................. $ 8,491 $ 725 $ 1,991 $ -- $ 5,775
Capital lease obligations ...... 855 463 384 8 --
Operating lease obligations .... 2,550 584 1,066 649 251
------- ------- ------- ------- -------
Total commitments .............. $11,896 $ 1,772 $ 3,441 $ 657 $ 6,026
======= ======= ======= ======= =======
Cash generated from investing activities was $940,000 and $703,000 in cash
received from service agreement terminations and $388,000 and $448,000 from the
collection of notes receivable during the three and six months ended September
30, 2002 and 2001 respectively. Cash used in investing activities was $83,000
and $8,000 for capital expenditures and $85,000 and $0 for the issuance of notes
receivable during the six months ended September 30, 2002 and 2001,
respectively.
During the six months ended September 30, 2002 and 2001, $430,000 and
$791,000 respectively was used to repay long-term debt and capital leases. The
Company received $19,000 in cash from the exercise of stock options during the
six months ended September 30, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates. Market risk
generally represents the risk of loss that may result from the potential change
in the value of a financial instrument as a result of fluctuations in interest
rates and market prices. We have not traded or otherwise bought and sold
derivatives nor do we expect to in the future. We also do not invest in market
risk sensitive instruments for trading purposes.
The primary objective of the Company's investment activity is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, the Company maintains its portfolio
of cash equivalents in a variety of money market funds.
As of September 30, 2002, the carrying value of our outstanding convertible
redeemable subordinated notes was approximately $3.8 million at a fixed interest
rate of 12%. In certain circumstances, we may redeem this long-term debt. Our
other components of indebtness bear fixed interest rates of 6% to 9%. Because
the interest rates on these instruments are fixed, a hypothetical 10% change in
15
interest rates would not have a material impact on our financial condition,
revenues or operations. Increases in interest rates could, however, increase the
interest expense associated with future borrowings, if any. We do not hedge
against interest rate increases.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our Chief Executive Officer and our Vice President of Finance, after
evaluating the effectiveness of the Company's "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c)
and 15-d-14(c) as of a date (the "Evaluation Date") within 90 days before the
filing date of this quarterly report, have concluded that as of the Evaluation
Date, our disclosure controls and procedures were adequate and designed to
ensure that material information relating to us and our consolidated
subsidiaries would be made known to them by others within those entities.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in our internal controls or to our
knowledge, in other factors that could significantly affect our disclosure
controls and procedures subsequent to the Evaluation Date.
16
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has a pending lawsuit against an affiliated practice for
defaulting in the payment of the required service fees. The Company is seeking
damages equal to past due and remaining service fees, consequential damages
equal to the value of the intangible practice asset and attorney's fees. The
Company is also party to three other legal disputes arising from the ordinary
course of its e-Learning business. While in the opinion of management,
resolution of these matters is not expected to have a material adverse effect on
the Company's financial position, results of operations or cash flows, the
ultimate outcome of any litigation is uncertain. Were an unfavorable outcome to
occur, the impact could be material to the Company.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS OF SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our annual meeting of stockholders held on August 16, 2002, the
following matters were submitted to a vote of the stockholders:
1) Election of directors:
Name For Withhold
---- --- --------
James M. Powers, Jr. 8,751,071 130,168
Preston A. Zuckerman 8,751,103 130,136
After the August 16, 2002 annual meeting of stockholders, the following
individuals were also directors of the Company: James H. Collins, David A.
Little, D.D.S., Daniel T. Robinson, Jr. and George M. Siegel.
2) Approval and ratification of selection of PricewatehouseCoopers LLP as
independent auditors for the fiscal year ended March 31, 2003:
For Against Abstained
--- ------- ---------
8,870,883 10,356 --
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
Exhibit
Number Description Of Exhibits
------ -----------------------
3.1(1) Restated Certificate of Incorporation of Pentegra Dental Group, Inc.
3.2(1) Bylaws of Pentegra Dental Group, Inc.
3.3(7) Restated Certificate of Incorporation of Pentegra Dental Group, Inc.
3.4(7) Amendment of Bylaws of Pentegra Dental Group, Inc.
3.5(8) Restated Certificate of Incorporation of e-dentist.com, Inc.
4.1(1) Form of certificate evidencing ownership of Common Stock of Pentegra
Dental Group, Inc.
4.2(1) Form of Registration Rights Agreement for Owners of Founding
Affiliated Practices
17
4.3(1) Registration Rights Agreement dated September 30, 1997 between
Pentegra Dental Group, Inc. and the stockholders named therein
4.4(2) Form of Stockholders' Agreement for Owners of Affiliated Practices
4.5(3) Form of Indenture from Pentegra Dental Group, Inc. to U.S. Trust
Company of Texas, N.A., as Trustee relating to the Convertible Debt
Securities
4.6(7) Form of certificate evidencing ownership of Common Stock of
e-dentist.com, Inc.
4.7 Form of Convertible Redeemable Subordinated Note
4.8 Form of Redeemable Warrant
+10.1(1) Pentegra Dental Group, Inc. 1997 Stock Compensation Plan
+10.2(1) Form of Service Agreement
10.3(4) Credit Agreement dated June 1, 1998 between Bank One, Texas, N.A.
and Pentegra Dental Group, Inc.
10.4(5) Modification to Credit Agreement between Pentegra Dental Group, Inc.
and Bank One, Texas, N.A. dated September 9, 1998
10.5(5) Agreement and Plan of Merger among Pentegra Dental Group, Inc.,
Liberty Dental Alliance, Inc., Liberty Acquisition Corporation,
James M. Powers, Jr., Sylvia H. McAlister and William Kelly dated as
of November 13, 1998
10.6(2) First Amendment to Credit Agreement by and among Pentegra Dental
Group, Inc. and Bank One, Texas, N.A. dated as of February 9, 1999
10.7(2) First Amendment to the Agreement and Plan of Merger by and among
Pentegra Dental Group, Inc., Liberty Dental Alliance, Inc.,
Liberty Acquisition Corporation, James M. Powers, Jr., Sylvia H.
McAlister and William Kelly dated as of January 29, 1999
10.8(6) Third Amendment to Credit Agreement
+10.9(7) Employment Agreement dated November 12, 2000 between e-dentist.com
and James M. Powers, Jr.
+10.10(7) Employment Agreement dated February 15, 2001 between e-dentist.com
and Charles Sanders
+10.11(7) Employment Agreement dated February 15, 2001 between e-dentist.com
and James Dunn, Jr.
10.12(7) Asset Purchase Agreement by and among e-dentist.com, Inc. and
Dexpo.com, Inc. 10.13(7) Fourth Amendment of Credit Agreement
10.14(9) Plan of Reorganization and Agreement of Merger by and among EDT
Learning, Inc., Edge Acquisition Subsidiary, Inc. and the
Stockholders of Learning-Edge, Inc.
10.15(10) Plan of Reorganization and Agreement of Merger by and among EDT
Learning, Inc., TW Acquisition Subsidiary, Inc., ThoughtWare
Technologies, Inc. and the Series B Preferred Stockholder of
ThoughtWare Technologies, Inc.
10.16(11) Asset Purchase Agreement by and among EDT Learning, Inc. and
Quisic Corporation. Common Stock Purchase Agreement by and between
EDT Learning, Inc., Investor Growth Capital Limited, A Guernsey
Corporation and Investor Group, L.P., A Guernsey Limited
Partnership and Leeds Equity Partners III, L.P.
- ----------
(1) Previously filed as an exhibit to EDT Learning's Registration Statement on
Form S-1 (No. 333-37633), and incorporated herein by reference.
18
(2) Previously filed as an exhibit to EDT Learning's Registration Statement on
Form S-4 (No. 333-78535), and incorporated herein by reference.
(3) Previously filed as an exhibit to EDT Learning's Registration Statement on
Form S-4 (No. 333-64665), and incorporated herein by reference.
(4) Previously filed as an exhibit to EDT Learning's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1998.
(5) Previously filed as an exhibit to EDT Learning's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1998.
(6) Previously filed as an exhibit to EDT Learning's Annual Report on Form 10-K
for the year ended March 31, 2000.
(7) Previously filed as an exhibit to EDT Learning's Annual Report on Form 10-K
for the year ended March 31, 2001.
(8) Previously filed as an exhibit to EDT Learning's Annual Report on Form 10-K
for the year ended March 31, 2002.
(9) Previously filed as an exhibit to EDT Learning's Form 8-K filed October 16,
2001.
(10) Previously filed as an exhibit to EDT Learning's Form 8-K filed January 30,
2002.
(11) Previously filed as an exhibit to EDT Learning's Form 8-K filed July 2,
2002.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to the requirements of Item 14(c) of Form
10-K.
Reports on Form 8-K
1) Current Report on Form 8-K dated July 1, 2002 (Item 2. Acquisition or
Disposition of Assets).
2) Current Report on Form 8-K dated September 3, 2002 (Item 5. Other
Events).
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, EDT Learning, Inc., has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EDT Learning, Inc.
Dated: November 13, 2002
By: /s/ James M. Powers, Jr.
------------------------------------
Chairman of the Board, President and
Chief Executive Officer
By: /s/ Brian L. Berry
------------------------------------
Vice President of Finance (Principal
Financial Officer)
20
CERTIFICATION
I, James M. Powers, Jr. certify that:
1. I have reviewed this quarterly report on Form 10-Q of EDT Learning,
Inc.,
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /s/ James M. Powers, Jr.
-----------------------------------
James M. Powers, Jr.,
Chairman of the Board, President and
Chief Executive Officer
November 13, 2002
21
CERTIFICATION
I, Brian L. Berry certify that:
1. I have reviewed this quarterly report on Form 10-Q of EDT Learning,
Inc.,
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /s/ Brian L. Berry
--------------------------
Brian L. Berry
Vice President of Finance
November 13, 2002
22
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of EDT Learning, Inc. (the Company)
on Form 10-Q for the periods ending September 30, 2002 as filed with the
Securities Exchange Commission on the date here of (the Report). I, James M.
Powers, Jr., Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
By: /s/ James M. Powers, Jr.
-------------------------------------
James M. Powers, Jr.,
Chairman of the Board, President and
Chief Executive Officer
November 13, 2002
23
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of EDT Learning, Inc. (the
Company) on Form 10-Q for the periods sending September 30, 2002 as filed with
the Securities Exchange Commission on the date here of (the Report). I, Brian L.
Berry, Vice President of Finance of the Company, certify, pursuant to 18 U.S.C.
ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
By: /s/ Brian L. Berry
----------------------------
Brian L. Berry
Vice President of Finance
November 13, 2002
24